May 2012 Archive for Economic Sense

In a recent Mother Jones article, I found some pretty common misconceptions related to agricultural policy. The concluding paragraph sums up much of the article:

"At a time when the public is increasingly demanding a more sustainable and healthy food production system, Congress is in the process of enshrining agribusiness as usual—pinching the pennies that go to sustainable food programs while propping up destructive agriculture tailored to the profit needs of agrichemical companies like Monsanto."

In this article, the concept of "Big Ag" is referenced at least 4 times. When I hear the term ‘big ag’ I have to read on to see if they are confusing 'big ag', 'factory farming' or 'industrial agriculture' with the complex network of modern family farms, biotechnology companies, food processors, and retailers that cooperate to bring healthy and sustainable food to your table. It seems to be the case in this instance.

One of the major concerns with the farm bill, as presented in the article, is that budget cuts will lead to decreased funding for ‘progressive’ food and ag programs while continuing to promote more ‘regressive’ ‘Big-Ag’ friendly areas of agriculture:

"All of that, of course, is manna to the companies that supply inputs to industrial-scale farmers: seed and pesticide companies like Monsanto and Syngenta; and to the companies that buy corn and soy and transform them into a range of low-quality, profitable foods."

So lets look at the inherent claims made here and above.

Are we pinching pennies from sustainable food programs and propping up ‘destructive’ agriculture tailored to the needs of agrichemical companies and industrial-scale producers?

You might claim that if there are cuts to funding for marketing foods to farmers markets or financing transitions to organic farming, that we are defunding sustainability in the farm bill. However, many of the green technologies (herbicide and pest resistant GMO crops, pharmaceuticals) used by modern farmers dwarf the impact of other consumer green technologies like hybrid cars. These technologies certainly profit companies like Monsanto, but shouldn’t we expect companies to profit to the extent that they improve the lives of others? It should also be emphasized that these technologies are largely scale neutral, and aren’t used exclusively by the largest or ‘industrial-scale farms.’ In fact, globally, the single largest growing demographic of GMO adopters are small land holders in developing countries.

When you actually follow the money, it may appear that it all goes to ‘Big Ag’ in terms of large producers that then in turn buy inputs from companies like Monsanto. In reality, subsidies make up a very small percent of the budget of the largest farms and likely don’t impact input or cropping decisions. They actually make the largest difference in terms of budget to the smaller producers.

Among those most lagging in green technology adoption are organic producers, which have zero tolerance for GMOs, (although fully embracing more volatile methods utilizing nuclear radiation to breed better plants). So, its not entirely clear cut that taking funds from local and organic programs would have a net negative impact on the environment, or that it promotes ‘destructive’ agriculture.

Do subsidies largely favor the consumption of low quality foods as opposed to healthy fruits and vegetables? Are we propping up the companies that process corn and soy?

Some people have the impression that healthy supplements in our diets, like fruits and vegetables, are more expensive than processed foods containing staples like corn and soybeans because corn and soybeans are subsidized more heavily than fruits and vegetables. This couldn't be further from the truth. The agronomics, labor, risk, economies of scale, and capital costs associated with fruit and vegetable production make those crops much more expensive than commodities, and have a much larger role on their prices than subsidies. Eliminating commodity programs would have an insignificant impact at the retail level on staple food prices relative to fruits and vegetables.

In fact, most of the research indicates that completely eliminating corn subsidies would reduce corn based food consumption by less than ½ of 1% .

Never mind the fact that soy is one of the healthiest food products that you can eat, and a large amount of corn ultimately goes to producing healthy, sustainable, and nutritious meat products like lean beef!

The overall impact of completely eliminating U.S. commodity protection and subsidies at the commodity level in terms of total acres produced and commodity prices would also be minimal, as reported by researchers at UC Davis:

Eliminating or restructuring the farm bill is not an issue of sustainability or healthy food production. At best it is a size and scope of government debate. Regardless, if we completely eliminate commodity related programs and subsidies, corn is still king and Monsanto will still continue to sell Roundup and GMO soy as long as the 98% of all U.S. farms that are family farms embrace the benefits of modern sustainable agriculture.At a time when the public is increasingly demanding a more sustainable and healthy food production system, ‘Big Ag’ is delivering.

Previously I made a post entitled ‘Pink Slime: What is Seen and Unseen.’ Having made its way through some social media channels, it has received some interesting comments. A couple common arguments that seem to stand out, not only in my posts, but also in other articles could be generalized as follows:

"This is how the free market works. Supply chains will adjust. This isn't a unique situation that requires any further analysis. It doesn't stand out among the millions of other choices consumers make on a regular basis between numerous other products."

"Why even mention it. So what if consumers are uninformed. Education and evidence are really irrelevant to this issue (or any issue for that matter) because people are irrational. "

These comments really help to clarify the real issue here. The supply chain is really at the heart of the issue for many of those slamming pink slime. Its not pink slime in and of itself that is their only problem. They don't like modern food supply chains (think ADM, Monsanto, Wal-Mart), and if they get their way, our food supply chains would more closely resemble the balkanized gasoline market, with all of the restrictions and the required bottlenecking boutique of gasoline blends etc. and of course the high prices.

If I thought this were simply about food preferences, food choices, and consumers making decisions based on those preferences, and the markets responding, then of course this would all be a moot discussion. Those that simply choose to avoid finely textured lean beef, are not necessarily the problem. The goal of the purveyors of the pink slime propaganda isn't simply to persuade consumers to choose alternative products, but to build the sentiment that will support coercive government intervention in the market place. (as has happened in other states with laws regarding 'child labor', ‘dust’ regulation, 'CDL requirements for operating farm machinery', 'battery cages' in egg production, 'gestation crates' in pork production, fat taxes, sugar taxes, salt taxes, hormones, antibiotics, biotechnology...pick your technology, ingredient, and regulation).

From fiction to reality, biotechnology, 'pink slime', pharmaceuticals, modern food supply chains and processing, (name your villain) are all contemporary analogs to 'Rearden Metal' from the book Atlas Shrugged. When Dagney had to go out on her own and start the 'John Galt Line' it was in fact largely in part a response to the loss in demand as a result of the dynamics of public opinion regarding Rearden Metal, penalized for being virtue. Given the negative public perception and the heavy burden of the regulatory environment for the railroads, Taggert Transcontinental stock was plummeting.

Recognizing this dynamic between public opinion, market forces, and the regulatory apparatus and making it known is essential to the perpetuation of a free society. As Don Boudreaux of George Mason University states so well:

"What matters mostly – overwhelmingly – is the climate of opinion. And so affecting the climate of opinion for the better seems to me to be, by far, the only long-term means of ensuring the stability of a free society."

But, can we really affect public opinion for the better? Are people obstinate and irrational in their views? Is evidence irrelevant?

"Reason, my dear fellow is the most naive of all superstitions...logic is a primitive vulgarity" -Dr. Pritchett, Atlas Shrugged.

Is evidence always and everywhere irrelevant, or is it just minimized by propaganda and undervalued in general? Does the assumption of perfectly rational behavior have to hold to make these arguments, or to approach these issues utilizing the analytical way of thinking that economics teaches? Should we just assume that all behavior is mindless and throw in the towel? That would certainly relieve many of us a lot of stress and of course, that's what the interventionists like Dr. Pritchett in Atlas Shrugged wanted people to think. They desire a public that has grown disdainful of facts and evidence, looking to intellectuals and politicians to make things right.

But, as Steve Horowitz points out in his textbook 'Lessons for the Young Economist':

"When we look at the world and try to make some sense of it, one of the most basic and crucial distinctions we all make—usually without even realizing it—is the difference between purposeful action versus mindless behavior...The lessons in this book apply to purposeful actions performed by

conscious people who have goals in mind."

As Dr. Horowitz goes on to explain, even if people often 'miscalculate' or aren't "perfectly rational people" the logic of economic thinking holds. As Economist Peter Boettke states:

"The great free market economic thinkers from Adam Smith to F. A. Hayek never argued that individuals were hyper-rational actors possessed with full and complete information, operating in perfectly competitive markets.... Efficient markets are an outcome of a process of discovery, learning, and adjustment, not an assumption going into the analysis."

And in fact, blogs, even 'micro bloggers' with just a few thousand imprints or less, all have a role to play in adding to this pool of knowledge. Even if they are preaching to the choir (i.e. read mostly by like minded individuals) they provide an arsenal of ideas that help everyone to better structure their thoughts, and share them with others, and occasionally someone that may actually change their mind. Not everyone is a general like Bodreaux and Roberts at Cafe Hayek, but given this war of ideas and the role they play in a free society, every soldier counts. Post by post, line by line. While its origins are disputed, the quote often attributed to Thomas Jefferson is no less true:

"The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt."